Game Theory in Management

It’s a pretty amazing coincidence that the September theme for ProjectManagement.com is Personal PM, seeing as my son is getting married later this month. Given that the typical wedding service lasts between twenty minutes and one hour, such occasions may be, on a minute-by-minute basis, the most thoroughly planned and scheduled events in the universe. Smallbusiness.chron.com asserts that Critical Path Method (CPM) scheduling began in ancient times, and cites the pyramids (2589 BC) as evidence,[i] but marriages may pre-date the pyramids by thousands of years, making them, in my opinion, the most likely driver for the invention/discovery of CPM. This provides quite the perspective flip, no? In the 21^st Century, the preeminent organization for advancing Project Management, PMI®, assigns as a monthly theme for its writers the notion of “personal” PM, when it may very well be that PM originated and was personal all along, and only moved to industry and management science later. But this perspective points to something that I think we’ve known all along, but only rarely articulated: Project Management has that scarce and unique attribute of being completely scalable.

To be sure, not all of the management concepts that seek to belong to the PM club are scalable. Consider risk management (no initial caps). Those techniques might aid in making decisions in a gambling establishment, but most table games in, say, Las Vegas have very specific, inviolable rules, and are conducted in a highly controlled environment. Given the number of cards in a deck, or number of faces on dice, or number of slots on a roulette wheel, Gaussian Curve-based analysis can provide for some better-informed decisions. Business, in general, and Project Management in particular have very few very specific rules, and never takes place in a highly controlled environment. Dealing with chaos is part and parcel of the PM function, and chaotic events are, definitionally, impossible to quantify with respect to their impact(s) or odds of occurrence. So, risk management (no initial caps) utterly fails the scalability test.

What of this blog’s titular analysis technique, Game Theory? Well, this is more of a mixed bag, and mostly depends on the game being analyzed, along with its strength of analogy to the management problem being addressed. John Nash won a Nobel Prize in economics for his contributions to Game Theory and management sciences, but Game Theory itself also suffers from a limited capacity for scalability, with perhaps the best example being the Ultimatum Game. This game entails approaching two people (Person A and Person B) and making them the following offer: the Experimenter will give them $100 (USD) if Person A can produce a scheme for how the money will be split between them, and this plan is accepted by Person B as proposed the first time. If Person B rejects Person A’s plan to split the money, neither participant receives anything. Conventional Game Theory wisdom held that Person A would maximize their payoff by proposing that Person A receives $99, while Person B receives only $1, on the notion that Person B would essentially be presented with a choice to receive either $1 or nothing at all, and could be reliably projected to choose the former. In actuality, this proposed split was almost never accepted, usually because Person B didn’t believe that such a proposal was “fair.” In certain cultures, even a 50/50 split was routinely rejected, for what the researchers called “cultural” reasons. But another way of saying “the experiment didn’t work out as our theories predicted due to cultural reasons” would be “our analysis failed to take into account a sufficient number of parameters – much less accurately quantifying them – to generate a reliable predictor of the subjects’ decisions.” In short, the difficulty in recognizing and quantifying the necessary number of parameters to reliably invoke Game Theory in business applications serves as an upper limit on its scalability.

Compare this limited scalability to Earned Value and Critical Path Methodologies (EVM and CPM, respectively).  To get a pretty accurate idea of how much a certain effort, large or small, will cost at its conclusion, simply assess how much has been spent by the time the 50% complete point has been reached, and double it. By extension, dividing the percent complete figure into cumulative actual costs generates a fairly reliable Estimate at Completion. Interestingly, this formula also works for schedules (though it’s not, technically, CPM). To get a usable estimate of how long a specific piece of Scope will take to complete, again, large or small, divide the percent complete figure into its cumulative duration. As for CPM-specific applications, all successful projects had to be directed by a person or persons who knew which activities needed to be completed before others could start, well before anybody thought to coin the phrase “schedule logic.”

To sum up, the essential analysis techniques of PM, Earned Value and Critical Path, are completely scalable, from modern mega-projects, to ancient mega-projects, all the way down to arranging a wedding. Indeed, I think we should petition to include a chapter on bouquet-throwing in the next edition of the PMBOK Guide®!

[i] Retrieved from https://smallbusiness.chron.com/history-critical-path-method-55917.html on September 3, 2022, 19:45 MDT.

In last week’s blog I discussed some of the organizational drivers behind the tendency for demand for PM expertise becoming somewhat, ahem, uneven, and went on to review its cyclical nature. I wrapped up by promising to address what the canny PMO Director can do to flatten out the rejection-to-demand-to-rejection sequence, but one thing I absolutely did not promise was that implementing these recommendations would be easy.

First off, it’s necessary to understand that most of the elements that drive the ups and downs of PM expertise demand are internal to the macro-organization. While the demand for quality on-time, on-budget project delivery from external sources (i.e., your customers) will always be high, the best way to deliver on this demand will tend to vary, depending on the type of projects your company works, the competition, and the level of PM knowledge possessed by the organization’s decision-makers. But one particular aspect of the internal dynamics of setting the appropriate level of PM expertise within the organization will almost never change: the strategy of getting “experts” to harangue executives about doing PM “right,” and pushing for more funding, visibility, or authority never works. Oh, it may give the illusion of effectiveness in the short term, as these executives feign their fealty to the concept of attaining an advanced PM proficiency, and parrot the terms in the lexicon. But when it comes to actually using their organizational influence to compel the desired behaviors, it simply doesn’t happen. When the PMO loses influence, talent, and budget, those who advocated for this approach never seem to learn from their failures, opting instead to blame the organization itself for refusing to accept change, or some such. And yet, this seems to be the de facto strategy for reversing a decline in demand for PM expertise (Step E in last week’s blog’s graphic).

The aspects locking your organization into the PM demand cycle fall into two bins:

• Availability of PM resources outside the PMO’s control (“shadow organizations”), and
• The level of contagion of the narrative that the decline (or even elimination) of project disasters is evidence that too much budget is being dedicated to the PMO.

I’ll address these in order. Recall Hatfield’s Incontrovertible Rule of Management number (whatever): Quality, Affordability, Availability, pick any two. If your PMO provides expensive, high-value PM services in an organization comprised of many, smaller projects, that’s bad enough. But if this same PMO demands that these multiple, small projects adhere to (and pay for) a robust Critical Path, Earned Value, and Change Control system, then those PMs performing the actual work will tend to opt out. In the worst-case scenario, they will want to exempt themselves from any PM requirements, but in the instances I’m addressing here they will seek to hire their own Project Controls specialists, at a more affordable rate, who will just provide the basic PM artifacts they believe represent the minimum needed to deliver the project on-time, on-budget. Make no mistake: if these PMs are allowed to get away with this tactic, the demand curve for the personnel associated with the PMO gets flattened like a sledge hammered pancake.

I hate to say it, but the best solution to this problem is somewhat Machiavellian: actively survey the company for shadow organizations, and shut them down. Perhaps the easiest way of doing so is to name specific software platforms that perform the Earned Value and Critical Path Methodologies, and then allow only personnel associated with the PMO to have access to them. Sound outrageous? Then consider the chaos that would ensue if a certain Program Office were to decide that it didn’t like the way the organization’s travel expenses were being reimbursed, and set up their own general ledger. If having multiple, uncoordinated accounting offices would obviously be harmful to the company, why should multiple, uncoordinated PM offices be any different?

As for the narrative that the absence of project disasters is evidence that too much budget and authority is being sent to the PMO, one would think that all that is needed is to point out that the reason the individual components of the portfolio are coming in on-time, on-budget is the level of expertise represented by the PMO. Sadly, that counterpoint rarely seems to carry the day. Realistically, the only reliable way of resisting the advancing of the narrative that maintains that the PMO is consuming resources at an unacceptably high rate is to ensure that it functions as a meritocracy, with absolutely no cronyism or favoritism present. This does not so much provide insulation against the bloated-PMO charge as much as it eliminates a vulnerability. The PMO afflicted by nepotism or cronyism virtually invites the bloated accusation. Conversely, any Team that is demonstrably managed as a meritocracy (the only clear and obvious one I know of is the United States Chess Federation, but I’m sure there are others) will be very resistant to these claims.

But until the business model pathologies that drive the PM talent demand-then-reject cycle are not just mitigated, but eliminated, Project Management will continue to have a tumultuous relationship with job security. I’m just hoping that the more heart-stopping climbs and plunges in this roller coaster happened back when I was younger!

Since the very definition of Project Management involves a unique or novel product or service, the appropriate level of demand for PM services is often highly variable, even in those organizations with projects making up a strong majority of their contract backlogs. This variability is in strong contrasts with the level of demand for our friends, the accountants, due to the fact that no company can function without paying taxes or meeting payroll, among the myriad other general ledger functions performed by them. The demand for general ledger expertise pretty much parallels the overall size of the organization in a given business sector, with its boundaries being not hard to ascertain. If the books don’t balance, or the profit-and-loss statement contains clear errors, or the taxman reviewing the organization’s returns demands an immediate audit, it’s safe to say the company needs more accounting talent, immediately. If the company’s overhead rates are so high that it’s no longer competitive, and none of the lower-boundary symptoms have manifested, it might be a good idea to cut back on the Accounting Department.

For we PM-Types the upper and lower boundaries are not as clear, and their placements are susceptible to the subjectivity that accompanies managerial ignorance and business model pathologies. Consider the following graph:

1. This is where most Project-oriented organizations begin, since they tend to hire the engineers, scientists, programmers, etc. who perform the actual project work, with or without guidance. This level of PM capability is color coded light red, to indicate that it’s not to be considered functional.
2. Step B occurs when a senior-level manager recognizes the need for a more formal, robust PM capability, a major project overrun has occurred, or (more often, in my experience) the organization is pursuing (or actually wins) a contract for work that stipulates, if not a more advanced PM maturity, at least the capability of producing the artifacts consistent with such an ability (e.g., Gantt Charts, Cost Performance Reports [Format 1], etc.). Demand for PM talent escalates and, as it is collected, the organization begins to improve its PM aptitude. This Step level is color coded yellow, to indicate a marginal functionality.
3. This Step indicates a middling-to-good level of competence, as indicated by the generation of useful, insightful information streams showing portfolio-wide cost and schedule performance in addition to meeting external PM-centric requirements. Another, critical indication of arriving in this zone: the number of Projects coming in late or overrunning drops precipitously. Great news, right? Maybe. Recall the business service axiom, Quality, Affordability, Availability – pick any two. This level of PM capability isn’t cheap, making it a likely target for non-PM-types, whenever a discussion of how to cut costs comes up. They will be aided even by some within the organization’s PM ranks, who eschew the basics of Critical Path and Earned Value Management, and will point to the absence of Project trouble as Exhibit A behind the argument that that level of PM expertise is overkill.
4. Don't let it be forgot
   That once there was a spot
   For one brief shining moment that was known
   As Camelot[i].
5. Now, as elements of this so-called advanced PM capability begin to include more expensive but nevertheless useless techniques (cough, risk management [no initial caps], cough), the more poorly-performing PMs will tire of having their lack of performance exposed by the system, and will exert considerable effort into opting out, leading to the inversion of the trajectory at Step E. Since the organization as a whole has been performing well, a few renegades can escape notice.
6. As the trickle of Projects opting out of the Project Management Information Systems becomes a torrent (Step F), the system maturity slope plummets towards highly uneven implementation, followed closely by…

1. We’re back at Step A, awaiting a major Project catastrophe.

The reason I referred to this cycle in the title as a roller coaster has to do with the timing and magnitude of the events and PMO responses. The figure shows a nice sine wave-style curve, but that’s only for illustration. In real life, the timing of the events and amplitude of the responses are highly variable, some Steps coming in bunches, others drawn out over quarters, or even years.

This is where the gig economy comes into play. While personnel from other fields can often count on a steady-state of demand for their services, we PM types enjoy no such consistency. Depending on where the organization is in the cycle’s Steps above, demand for PM talent can either be intensely high or depressingly low, the precise type of business cycle that makes offering talent in the field a rather excellent fit for a variable supply structure. Are there strategies available to the PMO to even out the extremes of this curve? Sure, and probably the best one is…

Whoa, look at that! Out of pixel ink for this week. Tune in next week for the thrilling conclusion to The Gig Economy Comes For The PM

[i] Retrieved from https://www.allmusicals.com/lyrics/camelot/finaleultimocamelotreprise.htm on August 14, 2022, 17:40 MDT.

Before GTIM Nation accuses me of indulging in PM fan-boy-ism, allow me to point out that the supporters of virtually every management strategy or new business model never seem to be able to articulate those strategies’ or models’ upper limit of efficacy. One hundred and ten percent scalability seems to be baked into every single one of these cakes. Perhaps the most dramatic example of this comes from the world of psychology. B. F. Skinner, through his books Walden Two and Beyond Freedom and Dignity, essentially went from Pavlov observing that his dogs salivated when they heard the dinner bell all the way to asserting a basis for ordering all of human society. And, for the record, I have on several occasions pointed out that PM techniques are utterly ill-suited for Asset Management, or handling functions.

But to prove the assertion in the title, let’s engage in a couple of mental exercises. What kinds of cooperative efforts require “management”? I would argue that those would be the efforts where there are a lot of unknown parameters that have/will have bearing on the optimal decisions and strategies. For example, driving to work in the morning doesn’t require much in the area of management, since (for most of us) it’s down to a routine. Conversely, the act of driving the family across several States for a vacation does require some level of planning and on-the-spot changes to those plans, both with respect to one’s own behavior and the behavior of others – the very definition of management. What we have here is a sort of scale, where the routine and rarely-changes-from-the-baseline efforts are on one end, and the entirely novel, never-been-attempted (while requiring some level of resources) scope is on the other.

Recall one of the most common definitions of a “Project” as the creation of something novel (e.g., there’s only one Hoover Dam). Referring back to our scale, Project Management clearly belongs on the “entirely novel” side, but I want to argue something further. As the novelty of an effort moves towards the routine, so does the need for any kind of management. The manager overseeing an assembly line, where each of the workers know exactly what to do, will typically encounter malfunctioning machines, or workers not being able to show up to the facility, or upper management inflicting changes in requirements – things of that nature. The Project Manager, in addition to the types of problems encountered by her assembly line counterpart, can also expect to encounter far less foreseeable issues, often impossible to anticipate. There’s a reason why risk managers (no initial caps) seem to gravitate towards PM much more than they do to basic manufacturing. And, when they do weigh in on matters PM, they carry with them the whole other category of “unknown unknowns,” events that are utterly capricious in nature. I think the mere existence of “unknown unknowns” as a category of unforeseeable events that are still within the purview of the project’s scope is a tacit recognition of the whole lots-more-weird-stuff-happens-to-us effect.

Let’s take a look at the more routine side of this scale by posing a question about basic management science: is there a particular field or arena of business that’s home to a vast array of formulaic approaches to management? If you answered “yeah, that would be Asset Management,” go to the head of the class. The codex covering Asset Management – including Generally Accepted Accounting Principles – is so vast that universities grant graduate degrees in it. To even credibly engage in performing its basic functions requires an extremely-difficult-to-attain certification (the CPA). Almost by definition, Accountants rarely (if ever) encounter a genuinely novel situation or circumstance that has no precedent in either GAAP or tax law. Again, this codex is certainly vast, but my point is that it’s not set up to handle the unexpected. It very specifically spells out, step by step, what to do for a given situation or circumstance. Indeed, the Asset Managers’ cliched assertion that the point of all management is to “maximize shareholder wealth” points to the fact that they truly believe that every single decision made in the business world can be quantifiably reduced to an entry in a profit and loss statement which, in my mind, is clearly absurd. For those who would disagree with the previous sentence, consider the scenario where the Project Team has delivered on-time, on-budget, while overcoming a series of technical, labor, supplier, and even environmental problems unforeseen at the time of the freezing of the baseline. The customer sees this, recognizes the managerial acumen, and resolves to send all future, similar scope to this contractor. Here’s the million-dollar question: how does any of this get captured or quantified as an entry into the general ledger?

In the world of management, the rote is pretend management, and the new, never-before-tried is the real deal. One last request: remind me which end of this spectrum is dominated by PM?

One of the most fascinating games that we Game Theorists like to analyze is the Hawk/Dove game. Imagine a population of 100 generic birds. Each bird can either forage for their own food (Dove), or else aggressively attack other birds, and take their food away from them (Hawk). Which strategy will prevail? Without getting into the mathematics of the payoff grid[i], I can relay a couple of the findings from analyzing this setup:

• The payoff for the entire population is maximized when every member behaves like a Dove.
• With the introduction of just one Hawk, however, the mixed strategy will quickly conform to the Nash Equilibrium[ii], of 25% Hawk, 75% Dove.
• If the available amount of foodstuffs is insufficient to feed the entire population, selecting the Dove strategy exclusively will lead to certain death.

Okay, so we’re obviously not talking about literal birds here, but humans in an environment where strategic options are extremely limited, reduced to the binary decision to act passively or aggressively with respect to the other members of the population. Of course, in real-life human interactions within, say, a certain organization or Project Team, the decision(s) to employ a passive strategy (perform your job duties as assigned, to the best of your ability, while assisting others doing the same thing) or a more aggressive one (pursue your own interests, even at the expense of the other members of the Team, or by bending the rules) are not so Boolean. Almost everyone engages in a “mixed strategy,” composed of actions that can be objectively aggressive, or objectively passive … or somewhere in-between. It’s this in-between area that makes the relevancy of games like Hawk/Dove to real-life situations somewhat ambiguous, meaning that any take-aways from such analyses won’t approach the precision of a calculated Nash Equilibrium. Essentially, Game Theory can lend credence to some usable axioms or somewhat dependable leading indicators of organizational failure, but can’t provide the basis for making specific organizational behavior and performance decisions.

Speaking of organizational behavior and performance decisions, GTIM Nation knows of my respect for the brilliant Michael Maccoby, particularly in his book The Gamesman: The New Corporate Leaders (Simon and Schuster, 1977). In this book, Maccoby posits four basic archetypes in the workplace:

• The Craftsman cares deeply about his actual output, but not so much as to the organization around him.
• Conversely, the Company Man cares very much about the organization around him, to the point of adopting its persona.
• The Jungle Fighter gets ahead through calumny and cloak-and-dagger strategies.
• The Gamesman does not perceive his paycheck as a roof over his head, or food on the table. Rather, this archetype sees his perks and renumerations as some sort of token in an elaborate game he’s playing. Because of this, the Gamesman is both more likely to have an advanced knowledge or capability in whatever industry in which he is engaged, and more willing to take risks than the others.

Now consider what happens when we combine the Maccoby Archetypes with the usable axioms from an analysis of the Hawk/Dove Game. If we were to bin the former into the structure of the latter, I believe Craftsmen and Company Men would tend to be Doves, while Jungle Fighters and Gamesmen would be Hawks. Recall the third bullet from the Hawk/Dove analysis, that, in the absence of sufficient supplies of food, selecting the Dove strategy exclusively means that bird will perish. In PM parlance, if there aren’t enough projects for all of the Project Teams in a given industry, relying exclusively on Craftsmen and Company Men to advance your organization – or even keep it afloat – might not be the best strategy.

“But Michael!” I can hear GTIM Nation say, “In virtually every other blog where you invoke the Maccoby archetypes, you roundly condemn the Jungle Fighters! Are you reversing that now?”

Not in the least. Jungle Fighters are absolute poison, no doubt about it. It just so happens that they share the Hawk bin with the Gamesmen, and together they make up the disruptive component of the organization, or Project Team.

All of which brings us back to the question in the title… are we talking disruptive data, or disruptive people? Because an absence of disruptive data may or may not represent management information system validity, but a complete absence of disruptive people may very well presage a competitive deficiency in your Project Team or macro-organization. The trick here is to differentiate between Jungle Fighters and Gamesmen when utilizing disruptive people. The acid test? While both Jungle Fighters and Gamesmen pursue their own interests, the Jungle Fighter will do so to the detriment of the Project Team, while the Gamesmen does so in cooperation with them[iii].

Also, Jungle Fighters have more of a buzzard-like appearance.[iv]

[i] For these formulae, see Game Theory In Management, pp. 22-26.

[ii] From Investopedia,” The Nash equilibrium is a component of game theory that asserts that a player will continue with their chosen strategy while knowing their opponent's strategy as they have no incentive to change course.”

[iii] My take, not Maccoby’s.

[iv] Same as iii.